FICO is an acronym for The Fair Isaac Company. It is actually a company who is responsible for the creation of the formula used in calculating a consumers FICO score. A FICO score, on the other hand, serves a basis to credit companies whether to grant or not to grant a loan to an aspiring applicant. This scoring method was launched way back 1956 by a mathematician named Earl Isaac in partnership with an engineer named Bill Fair.
To be able to get a consumers credit score, FICO uses these factors as its basis. A consumer s payment history tops the list. It is 35 of the total score. Next comes the amounts owed (30 ), then comes the length of credit history (15 ), new credits (10 ) and lastly, the types of credit cards used (10 ). These factors have its own importance or role in the total outcome of the calculation process.
One fallacy that is often believed by many is that FICO actually calculates a consumers credit score. This is absolutely not true. FICO is just a calculating method and it is not and will never be a company that calculates scores. The truth is, Fair Isaac is the creator of the formula but the credit bureaus are the one responsible for the end result of the credit score. These credit bureaus use the FICO scoring method that is why it is often a misconception by consumers that FICO is the one able to give scores.
Although the 3 major credit reporting companies (Equifax, Experian and TransUnion) uses the same calculating method that is the FICO, each of the 3 still has slightly different credit scores they give to consumers. This is because the difference in the information will prompt the calculation method to calculate on different figures also. This also causes a person to have 3 different scores from the 3 credit bureaus.
Not only has that, to add confusion to the already confused consumer, the 3 major credit reporting bureaus its own unique term they used to describe a credit score. TransUnion named its version of the FICO score, EMPIRICA while Equifax named it the BEACON score. On the other hand, Experian fondly renamed its version to the Experian/Fair Isaac Risk Model or sometimes, the Score Power.
This confusion may have also prompted the 3 major credit reporting companies to create what they called a Vantage Scoring Method. This is the same as a FICO, it calculates a consumer s credit score but it differs with its determiners which are used in calculating a consumer s score. Both also differ in the score range it gives to consumers. FICO has a 300 500 sore range while Vantage has 501 as its lowest and 990 as its highest possible score. But the thing is Vantage Scoring Method is still seldom used by credit companies.
If a consumer is able to understand what a FICO really is and how it works, chances are, he might be able to understand and improve his credit score too.
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This article has been provided by http://www.free-credit-reports.com , where you can compare credit report and identity theft protection services with this comprehensive chart of all credit report and credit score service providers.
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